Why Amazon is a 'must-win' for food brands

The food-and-drink category on Amazon is hot. Our Flywheel data shows that between 2019 and 2021 online edible grocery sales in the US grew 117% to reach $54.8 billion. In the five years between 2021 and 2026, we anticipate US online grocery sales adding $34.7 billion and outpacing bricks-and-mortar grocery store compound annual sales growth (CAGR) by more than 2.5 times.  

Amazon is slated to be one of the category’s fastest-growing channels and shoppers are increasingly turning to the platform to satisfy their cravings, and replenish fridge essentials as well as for full-basket grocery shops.

Amazon recognizes the growth potential in online fresh and non-perishable food sales–especially in the US, one of the world’s largest ecommerce markets–and is driving further penetration. Taking advantage of the pandemic-accelerated shift to online in 2020, Amazon has been streamlining the customer experience and developing front-end and back-end capabilities to set new standards in the same way that it has reshaped demand in other more ecommerce mature categories like consumer electronics, toys, and household goods.     

This presents a huge opportunity for the edible grocery brand looking to drive growth against a backdrop of squeezed wallets and budgets - but understanding the Amazon marketplace, its growth levers, and your sales and share on the platform versus your competition will be critical to capturing demand through this channel.

Aisles v algorithms

In Q2 2022, our Market Share competitive intelligence software shows that the largest subcategories in edible grocery were:

• Beverages (led by bottled beverages)
• Pantry staples (led by cooking and baking) and 
• Snack foods (led by nuts and seeds)

PepsiCo, Nestle, and Abbott dominated the first-party (1P) manufacturer ranking. But why? Is it because of a powerful brand identity developed over decades? Actually, no. On Amazon, brand equity doesn’t count for as much as some may think. The retail platform runs on an algorithm, that demands that brands meet certain specific criteria to drive shopper traffic to their product - and Amazon customers aren’t always searching for a brand.

Market Share, our Amazon data intelligence software, shows evidence that it’s not always the most well-known brands that dominate. In the 52 weeks to May 2022, our analysis of the snacking category on amazon.co.uk shows that five of the top eight brands (based on total sales) were actually challenger or start-up brands with no real-world brand equity.

Top 8 Snacking Manufacturers (1P + 3P Sales) - Amazon.co.uk (May 2021 - May 2022)‍

The low barrier to entry on Amazon means that leading brands have to compete with brands that they have not traditionally considered as part of their ‘everyday’ competitive set in-store. Amazon’s expansive assortments as well as its growing networks of third-party (3P) sellers - businesses that sell directly to Amazon’s shoppers - create a hypercompetitive shopping environment for brands looking to optimize Amazon’s fast-growing penetration into edible grocery. 

Market Share data, which is 95% accurate on Amazon.com*, shows the size of the 3P market within the category 

• Snacks, nuts and seeds: 46%
• Dried meat snacks: 43%
• Cookies: 40% 
• Potato chips: 26% 

This split was accurate as of September 2022. 

Some of these sales will come from vendors who are only 3P sellers- meaning they own the sale on the marketplace - while others will come from brands with majority first-party (1P) business models that also run a 3P operation.      

Understanding Amazon’s 3P marketplace model and working out what sales partnership will be most effective for your food or drink brand will be one of the first hurdles to overcome in working with Amazon.  

Another hurdle to manage will be new economic challenges that will come from facing the new cost-to-serve dynamics due to platform fees, fulfillment costs, and advertising expenditures. 

But the benefits of working with Amazon, with its unbeatable scale, reach, and rich source of data, cannot be overstated. In addition to the sales growth potential, products that sell well on Amazon inevitably get prime offline shelf space in traditional brick-and-mortar stores - evidence, if you needed it, of Amazon’s influence on the wider retail landscape.    

There is no question that one of Amazon’s strategic ambitions is to crack edible grocery, a category it has been trying to get right for some time. With the pandemic making online food shopping a permanent habit, we will watch with interest to see how the innovator retail platform capitalizes on new shopping habits and makes its mark in the lucrative but highly competitive fresh and non-perishable grocery space. 

Want to know how you’re standing out on Amazon’s increasingly crowded digital shelf in the edible grocery category? Market Share can tell you if you are winning or losing on Amazon, track your traffic and conversion rate, and tell you how you benchmark against your competition.

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